IO Mortgages and people's views

COLOURBOUNCE

eh2nt wrote: »

I think the OP's friends are going to be in for a big shock soon.

Recent FSA papers on interest only mortgages are encouraging lenders to make a check at least once (the FSA want more often) during the life time of the mortgage to ensure that the investment vehicle that the customers said they have is in fact there.

For those that do not have a vehicle (and i'm sure lenders will not be accepting sale of property / inheritance and lottery win as a suitable vehicle) they will be transferred on to a Capital & Interest repayment.

Remortgaging on similar IO is also going to be difficult as more and more lenders are now restricting IO and for those they agree are asking for proof of vehicle.

Clearly the later this is discovered for the ones without a vehicle the larger the monthly repayments are going to be.

Yep, FSA well behind the curve again. This will only work in a small number of cases where people can afford to go onto repayment plans. Had they been watching 10 years back, we would not have these issues, and certainly wouldn't have had rampant HPI built on the never never.

Thrugelmir

COLOURBOUNCE wrote: »

Yep, FSA well behind the curve again. This will only work in a small number of cases where people can afford to go onto repayment plans. Had they been watching 10 years back, we would not have these issues, and certainly wouldn't have had rampant HPI built on the never never.

Don't paint all of "finance" with the same brush. To illustrate the issues that face the FSA.

Lloyds acquired HBOS in October 2008. Took them 5 months to complete a full risk analysis of HBOS's mortgage book.

The final conclusion was that 75% of HBOS's mortgage lending was outside Lloyds own lending profile. In layman's terms. Lloyds would never had offered the same deals to customers.

Hence why there is a long way to go. Before the entire situation normalises.

COLOURBOUNCE

I take your point, but 2008 was only 4 years ago - seems longer I know. This was planted long before with the self cert dreamland seed. Since then, the inability of anyone - FSA, government or lender to see where this was going to end up is frankly incredible. The FSA are only now looking at the gate that is flapping in the wind and realise they don't even have the bolt.

Thrugelmir

COLOURBOUNCE wrote: »

I take your point, but 2008 was only 4 years ago - seems longer I know.

The problems started years before.

Bradford and Bingley invented mortgage securitisation in 1998 to fund their BTL mortgage boom. NR followed likewise in 1999 using securisation to fund their 125% together mortgages. Both failed for the same reason. A lack of available funding.

HBOS's issues started in 2003 when they switched to an aggressive selling policy becoming a money retailer as opposed to a bank.

wymondham

IO is probably fine as in the future when most of these come to settle their account and find they can't and we have a mass reposession looming there will probably be a government scheme whereby the tax payer foots the bill ...... ;-)

magpiecottage

wymondham wrote: »

IO is probably fine as in the future when most of these come to settle their account and find they can't and we have a mass reposession looming there will probably be a government scheme whereby the tax payer foots the bill ...... ;-)

No - the borrowers will blame the advisers, FOS will agree with them. The advisers will be driven to suicide and the loans will be repaid from their estates.

eh2nt

magpiecottage wrote: »

No - the borrowers will blame the advisers, QUOTE]

I have no clue as to what checks the advisors have to make during advising and submitting applications.

Was it / is it now a requirement for advisors to ensure their clients have the repayment vehicles they disclose on their applications?

billybear1

Locana wrote: »

HI

Believe me I know. Mum is 61, and I recently found out she is on an interest only mortgage which ends in about 6 years. She has no way to pay off the mortgage - 91K (unless she wins the lottery, grrr). I'm so furious with her but she is refusing to talk about it. Luckily she has about 270K equity, but that still means probably selling the family home and downsizing. I'm upset as my Dad passed away last year and I'm annoyed that the 'family' home will inevitably be sold.

Humph.

Lo

Surely you could take it on with a gifted deposit of X and then mortgage for X say in total £200,000! You keep the family home and your mum has £100k to find something else.

shortchanged_2

Like most things IO mortgages are fine in principle IF they are/were properly serviced by the borrower.

The problem is over the previous decade they were seriously abused, this is highlighted by the fact that we saw a massive increase in their numbers over the previous decade. Many people were actually using IO mortgages as an affordability reason for a mortgage based on how much they could afford to pay each month without considering how they would fund any form of repayment vehicle. This model was based on the need for high HPI.

Now this has all gone wrong and this is why we are facing the IO mortgage ticking timebomb.

Personally I don't see why everyone can't have a repayment mortgage (and overpay/use savings if they have the ability) as it creates a more level playing field and there is less room for creativity and also the debt is definately paid off at the end of the term with no ifs or buts. It does look like the banks have finanlly cottoned on to this and are now very reluctant to dish out IO mortgages. Hopefully it will now stay this way.

Spiggle

Hiya babyjp,

You will be soooo glad that you have your head screwed on from the start.

We have been in our home for 24 years. Initially the mortgage was IO and was relatively easy to get. We remortgaged and consolidated loans time and again on IO. So, we paid money out every month but consistently increased our debt. We also surrendered policies originally meant as the repayment vehicles a number of times.

About 7 or 8 years ago I finally gained a little bit of sense and when we yet again remortgaged but went onto a repayment. Now this will sound stupid (and thankfully I'm no longer the same person) but the first statement I got showing the debt had reduced was such a surprise, totally novel!

Over the past few years and particularly since I've really got into MSE my outlook has changed dramatically and we intend to be mortgage free by 2015 through overpaying and saving.

Believe me, a 51 year old who should have paid off what was originally a small mortgage this year if we'd done the right thing back then, you will be the one who will be laughing later in life. You are so sensible and are to be congratulated for your foresight. Don't ever doubt that you are going about things the right way.

Oh, and don't let anybody tell you that your way is too cautious because that is not true.

Good luck for your future.
Spigs